midterm - chapter 2

Question 1

What are some effects of inflation?

Answer 1

• workers have to earn more money to maintain some standard of living
• effects people of fixed income the most

Question 2

What is a cause of deflation?

Answer 2

usually occurs in periods of recession and depression

Question 3

output per person

Answer 3

GDP per capita

Question 4

person who owes money

Answer 4

debtor

Question 5

What are the causes of inflation?

Answer 5

• demand for goods and services is greater than supply
• when large supply of money is spent for goods that are in short supply

Question 6

the total dollar value of all final goods and service produced in a country during one year

Answer 6

Gross Domestic Product (GDP)

Question 7

production output in relation to a unit of input

Answer 7

productivity

Question 8

increase in the general level or prices

Answer 8

inflation

Question 9

the phase in which unemployment begins to decrease

Answer 9

recovery

Question 10

sales of durable and non-durable goods brought by consumers

Answer 10

retail sales

Question 11

• a person that purchases a corporate or government bond
• this means you have lent money to the organization and in return are paid interest for the use of your money

Answer 11

creditor

Question 12

How do interest rates affect business activities?

Answer 12

• if interest rates are high then will have higher business costs
• if rate is low, then lower business costs

Question 13

When do we pay interest?

Answer 13

we pay interest when we borrow money

Question 14

phase marked by a prolonged period of high unemployment, weak consumer sales and business failures

Answer 14

depression

Question 15

the portion of people in the labor force who is not working

Answer 15

unemployment rate

Question 16

period in which most peoplewho want to work are working, businesses produce goods and services and the rate of GDP growth increases

Answer 16

prosperity

Question 17

What is an effect of deflation?

Answer 17

prices of products are lower but people have less money to buy them

Question 18

When do we receive interest?

Answer 18

when we give money to invest, this is our fee for giving it

Question 19

movement of economy from one condition to another and back again

Answer 19

business cycle

Question 20

all people above age 16 who are actively workign or seeking work

Answer 20

labor force

Question 21

government spends more than it takes in

Answer 21

budget deficit

Question 22

What are the economic indicators for spending?

Answer 22

• Consumer Spending - the money you earn and spend
• Retail Sales - the sales of durable and nondurable goods bought by consumers
• Unemployment rate - the portion of people in the labor force who are not working
• Gross National Product - GNP - the total market value of goods and services produced by the residents of a country, even if they live abroad
• Gross Domestic Product - GDP - the total dollar value of the final goods and services produced in a country each year
• GDP per Capita - the output per person, calculated by dividing GDP by total population

Question 23

total amount owed by federal government

Answer 23

National Debt

Question 24

the interest rate individuals pay to borrow for the purchase of a new home

Answer 24

mortgage rate

Question 25

What are the 4 phases of the business cycle?

Answer 25

1. Prosperity phase 2. Recession phase 3. Depression phase 4. Recovery phase

Question 26

represents debt for an organization

Answer 26

bond

Question 27

refers to money spent by business for an item over long period of time

Answer 27

capital project

Question 28

a decrease in the general level of prices

Answer 28

deflation

Question 29

stock ownership, means ownership

Answer 29

equity

Question 30

What causes interest rates to change?

Answer 30

the supply and demand for money

Question 31

a number that compares prices in one year with prices in an earlier base year; measures inflation

Answer 31

Consumer Price Index

Question 32

the interest rate banks make available to their best business customers like large corporations

Answer 32

prime rate

Question 33

What is interest?

Answer 33

the cost of borrowing or lending money

Question 34

refers to salaries and wages as well as investment income and government payments to individuals

Answer 34

personal income

Question 35

a number that compares prices in one year with some earlier base year

Answer 35

price index

Question 36

period in which demand begins to decrease

Answer 36

recession

Question 37

represents ownership in a corporation

Answer 37

stock

Question 38

government may spend less than it takes in

Answer 38

budget surplus